Binding Death Benefit Nominations
When a life insurance or superannuation policy holder dies, their benefits under their policies are dealt with based on their nomination direction. If the deceased did not leave a binding death nomination, the Trustee of the fund is the decision maker over who receives the death benefit. They can decide to pay the benefit to the deceased’s estate or to an individual. What types of nominations are there?
Non-Binding Nominations
Making a non-binding nomination means that the Trustee of the super fund will consider the wishes of the member but will ultimately have the final say over who receives the benefit and in what proportion. The Trustee will consider the deceased’s family and personal relationships and the circumstances of all possible beneficiaries. The Trustee may decide to pay the death benefit to the executor of the deceased’s estate this will then be the responsibility of the executor to distribute the asset to the appropriate beneficiary.
Binding Death Benefit Nomination
When a binding nomination is lodged, the Trustee usually has no discretion to decide who should receive the death benefit. The member themselves nominates an individual to be the recipient. A Trustee will then pay out a death benefit according to the nomination and this leaves no need for investigations or decision making for the Trustee. Another option is for a member to nominate their estate to be the beneficiary and this will allow the death benefit to be governed according to the terms of their will.
The majority of superannuation funds have a form to allow a member to make a death nomination, which needs to be signed in front of a witness and sent back to the fund. For a binding death nomination to be valid, the individual that you wish to nominate must fall into a specific class of beneficiaries (that is, a spouse or a dependent child).
Notional Estate
A notional estate claim is an application to the Court to require assets that were distributed before the death of the deceased before death back into the estate. This allows entitled persons to claim certain assets that the deceased disposed of within three years before date of their death.
The NSW Succession Act allows the Court to declare a death benefit nomination within a notional estate, thus allowing the asset to be distributed to appropriate beneficiaries.
The impact of notional estate claims against binding death nominations was demonstrated in a 2012 case in which a deceased’s will left legacies to his children and to a friend. He left his life insurance to his grandchildren and the rest of his estate was left to his wife. The estate was insufficient to properly pay out these legacies and the deceased had a self-managed super fund that his wife managed after he passed. When the deceased’s wife allocated the death benefit to herself, the deceased’s children filed a family provision claim against the estate. The Court subsequently found that the superannuation was eligible to be designated as notional estate. An Order was made that part of the funds were to be used to satisfy the gifts to the children. This is a complex area of law and our Estate Planning lawyers are experts. Call us on 4651 4800 for advice.